10 leadership styles in business and when they’re effective

It’s usually obvious what kind of employees you need – but it’s not always clear what kind of leaders you need. 

This lack of clarity can have serious consequences: Harvard researchers found that between one-third and one-half of new chief executives fail within their first 18 months on the job.

One of the main reasons for this was decision-makers overestimating their abilities and potential or hiring a leader who just didn’t fit their business context.

If you’re hiring for a leadership position like a chief executive officer, you’ll want to avoid this mistake at all costs.

Being able to distinguish between different leadership styles in business and knowing which ones are right for your company is essential to making the right hire.

In this article, we’ll walk you through the 10 most common business leadership styles and when they’re useful to your business.

What are leadership styles?

A leadership style refers to the methods leaders use to engage with, motivate, and direct their workforce. It takes into account not just how they interact with their teams but also how they approach things like overall strategy and stakeholder management.

People have been theorizing about what makes a great leader for centuries – Aristotle said that to be a good leader, you must first be a good follower.

However, it was Daniel Goleman for the Harvard Business Review in 2000 who organized leadership behaviors into many of the styles we now recognize.

His aim was to identify the most successful leadership behaviors, and we’ll be going into some of the styles he identified below.

But first…

Why does leadership style matter when hiring leaders?

The recruitment, hiring, and onboarding process for a new hire can cost as much as $240,000 – that’s a lot of money to spend on the wrong person.

Identifying which leadership styles your candidates tend toward can be a great way of avoiding this costly hiring mistake.

But it’s not enough to ask them – you need to put them to the test. 

A CV or list of work experience isn’t sufficient to hire a great leader because it doesn’t show you how they will react to the challenges your organization will face. Research at the London School of Economics backs this up: Work experience is not a good predictor of job performance.

Goleman found that the most successful leaders displayed different leadership styles depending on what the situation called for.

With this in mind, leadership-specific testing and situational-judgment tests can show you how your candidates will react to challenges with more accuracy.

In fact, they can reveal candidates’ ability to: 

• Adapt to change

• Delegate tasks 

• Provide feedback to their team 

• Support their team’s development

• Facilitate high-level goals 

…and more.

So, what are the types of leadership styles in business, and how do you know which ones you should be looking for?

What are the 10 leadership styles in business?

The 10 leadership styles in business are:

1. Coaching

2. Visionary

3. Servant

4. Autocratic

5. Laissez-faire

6. Democratic

7. Pacesetter

8. Transformational

9. Transactional

10. Bureaucratic

Sounds like gibberish? Don’t worry – we’ll delve deeper into each of the common leadership styles..

1. Coach

What does the coach leadership style look like?

The coaching leadership style focuses on recognizing and nurturing the strengths of each team member and working with them to improve their collective outcomes.

Think of the best softball coach you had as a kid. They praised you for your pitching and helped you work on your weak swing. Your team grew in confidence and won more games that season. 

That’s what we’re looking at with a coaching leader.

When is the coach leadership style effective?

A 2016 study found that coaching leadership was most effective in building relationships and self-efficacy*.

* (Psst – that’s a bit of jargon that just means your belief that you’re able to complete the tasks necessary for success.)

This type of leader is best placed in direct management roles, working with teams where individual members lack the skills or knowledge they need to achieve their goals or have become bored or dissatisfied over time.

Let’s say you run a marketing company that regularly hires recent grads, and there’s a high turnover because they don’t feel they are being developed. 

It’s time to bring in a coaching leader. They will spend time getting to know each of your hires and helping them strengthen their skill set, creating a more positive culture within the team and improving their output and retention.

And when is the coach leadership style not effective?

When almost 70% of workers say they’d work more effectively if they were better recognized for their work, it might seem that the coaching leadership style is appropriate for every situation.

However, coaching leadership is time-intensive and focuses on the management of daily tasks. This makes it less useful in high-level or high-pressure leadership scenarios where a quick turnaround is necessary or where you just need good results, fast.

A coaching leadership style would be less appropriate for senior leadership in cost-cutting scenarios, for example, since the issue at hand is not a lack of employee engagement.

2. Visionary

What does the visionary leadership style look like?

A visionary leader is a big-picture thinker. They’re all about the company’s mission, which they use to unite and inspire their employees. They set big goals and encourage teams to think freely about how to reach them. 

Steve Jobs famously said when hiring John Sculley, the former chief executive officer of Pepsi, “Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?” 

That second part – that’s the visionary leader catchphrase.

When is the visionary leadership style effective?

The visionary leadership style is most effective when a big change is afoot and when a clear vision is needed to move the company forward.

Steve Jobs is a great example. When he returned to Apple in 1997 as the chief executive officer, the company was nearly bankrupt, but he made several big changes fast. He:

1. Convinced Microsoft to invest $150m

2. Cut the number of Apple products by 70%

3. Cut around 3,000 jobs

This led to an unbelievable $309m profit the following year. 

It’s a mindset well suited to chief executives, entrepreneurs, and change leaders, particularly when you’re heading into a period of rapid growth.

And when is the visionary leadership style not effective?

As we said before, visionary leadership is about the big picture. It’s not about the day-to-day, and that can be a problem depending on the type of role you’re hiring for.

If you’re looking for someone to fix operational issues or execute projects, a visionary leader is not your best bet.

You also need to be mindful of the dangers of visionary leadership. You’ll have to make sure you have a solid succession plan in place so that you’re not left in the lurch if a charismatic leader leaves.

3. Servant

What does the servant leadership style look like?

Instead of viewing themselves as commanders who all employees under them must obey, servant leaders consider their job to be empowering their teams to succeed.

In a team setting, servant leadership might look like a sales manager who sets a clear target for the next quarter and schedules one-on-one talks with each of their reps to discuss what they need to meet it. If the team falls behind, the manager pitches in to help them stay on track.

When is the servant leadership style effective?

A servant leadership style is ideal when your leader will be managing disparate workers or teams who need to be able to work independently, such as:

1. Remote teams of freelance writers or developers

2. Traveling salespeople 

3. Offices in different regions or countries

When Cheryl Bachelder took over the failing Popeyes Louisiana Chicken in 2007, she realized that senior management thought of their employees as a nuisance rather than a resource. 

She implemented a servant leadership model, giving franchise owners and restaurant teams the clear strategic goals they were lacking and the resources to meet them. The company was sold to Burger King in 2017 for $1.8bn.

And when is the servant leadership style not effective?

The servant leadership style has aspects in common with coaching leadership in that it is time-intensive and relies on listening.

In practice, this means that it’s not well suited to roles that require time-pressured decision-making.

It is also highly practical, which means that in a high-growth or startup-like work environment where creative brainstorming is needed, a servant leader may lack authority and the ability to keep their workers united around the overall vision.

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4. Autocratic

What does the autocratic leadership style look like?

Autocratic, or authoritarian, leadership is seen in leaders who seek no input from their employees and make decisions entirely based on their own expertise and judgment. 

In short: It’s their way or the highway.

When is the autocratic leadership style effective?

The autocratic leadership style gets a lot of flak, but it can be useful in some situations.

One of these is in battleground situations, such as if your company is facing a crisis and needs fast decision-making.

It can also be a good idea to give the most skilled person autocratic control in highly technical companies and projects so that they can make well-informed decisions quickly. 

One example is Bill Gates in the early years of Microsoft. As a gifted software developer, he was in charge of product development at the company from 1975 until 2006 and was notorious for being unreachable by phone.

Autocratic control enabled him to keep the company on the cutting edge of technology and not lose sight of its value.

And when is the autocratic leadership style not effective?

As we’ve mentioned, autocratic control is not a popular leadership style. In fact, many people associate it with their worst boss.

This is because such totalitarian leadership can cause issues for employee morale, engagement, and productivity since making employees feel heard at their workplace makes them three times more likely to be highly engaged.

With this in mind, you should steer clear of autocratic business leaders in times of large-scale growth or change, such as after a merger, when you want company culture to be at its best to boost productivity.

5. Laissez-faire

What does the laissez-faire leadership style look like?

Laissez-faire leadership is relaxed and hands-off. Instead of directly handing down tasks to employees, laissez-faire leaders trust them to meet their goals.

If an autocratic leader is a professor who hands out specific assignments and readings to their students, a laissez-faire leader is their colleague who tells them to explore the topic on their own terms.

When is the laissez-faire leadership style effective?

The laissez-faire leadership style is most effective in creative industries and innovative environments.

It can also be useful when managing a workforce made up of predominantly millennials and Gen Z, who value flexibility: 67% of millennials say that flexible working is important for promoting a work-life balance.

One strong example of laissez-faire leadership is Steven Bartlett, the chief executive officer and co-founder of the social media marketing startup The Social Chain Group. To cater to what he calls “the millennial mindset,” Bartlett gives his employees “complete freedom” in his company, including unlimited vacation days.

The Social Chain has a global collective reach of more than 200 million millennials, and its clients include Apple, McDonald’s, and the BBC.

And when is the laissez-faire leadership style not effective?

To work well under a laissez-faire leader, your team needs to be:

• Skilled

• Self-motivated

• Independent

• Clear on what their role and responsibilities are

Laissez-faire leadership doesn’t work well when your team needs hands-on development, guidance, or co-ordination. For instance, development projects often fall apart without a hands-on project manager to wrangle them.

For teams whose roles are less clear-cut – think of the difference between “partnerships manager” and “back-end Python developer” – steer clear of laissez-faire leaders, as laissez-faire leadership has been shown to erode role clarity. 

6. Democratic

What does the democratic leadership style look like?

Democratic leaders listen to their employees’ perspectives when making decisions and, when a consensus cannot be reached, aim for a compromise that takes into account all perspectives.

In practice, that might look like:

• Taking votes on important decisions, e.g., launch timelines for new products

• Collecting employee feedback on branding materials

• The team leader being the last to speak during team meetings and brainstorming sessions

When is the democratic leadership style effective?

Democratic leadership is effective in teams that are highly skilled and experienced, particularly when those skills and experiences are diverse.

A medical team is a good example. Ideally, the doctor in charge of care for a critically ill patient would consult a number of specialists who have also examined the patient before making big decisions for that person, such as changing their medications, performing risky surgical procedures, or discharging them from the hospital.

This has its benefits: Being listened to by superiors can help employees feel more valued in their work, and there is evidence it also improves trust in the organization.

And when is the democratic leadership style not effective?

Although a democratic leadership style is useful in situations in which all team members are working in service of the same vision, it can break down in more tense scenarios.

Employees are unlikely to vote against their own interests, and if you’re heading into a gnarly restructuring period, making decisions democratically could bring decision-making to a halt or cause you to be too lax in making cuts.

7. Pacesetter

What does the pacesetter leadership style look like?

A pacesetter leader is most focused on achieving goals. They want everything to be done better and faster. They set high standards that they uphold themselves in their own work, and they rely on goal-setting more than praise when it comes to motivating their teams.

In real terms, imagine the most intense sales manager you can. They set high targets and only praise the reps who exceed them; if you’re behind the pack, you can expect this manager to start barging into your sales calls and taking over.

When is the pacesetter leadership style effective?

The pacesetter leadership style is effective in temporary projects and teams that are already highly motivated and competent and have clear measures for success and growth. 

A famous example of a pacesetter leader is Jack Welch, one-time chief executive officer of General Electric. He took a hard line on ranking his employees, rewarding the top 20% and firing the bottom 10%. During his tenure, the company’s value rose by 4,000%.

And when is the pacesetter leadership style not effective?

One of the problems that Goleman identified with pacesetter leaders is that they can often overwhelm their teams with their high expectations and leave them feeling burnt out and undervalued.

What’s more, being so results-oriented leaves little room for creativity or innovation.

For example, if you were hiring for a senior content editor, a pacesetting leader might be able to jack up your editorial team’s output, but they’d probably also squeeze out any room for creative thinking, experimentation with new formats, or longer-form content.

8. Transformational

What does the transformational leadership style look like?

Transformational leaders motivate their teams to innovate and create organizational change in service of their company’s overall mission. Think of it as a cross between the coaching and visionary leadership styles.

An example of a transformational leader might be a senior manager at an e-commerce company who, recognizing the company’s commitment to sustainability, instructs a task force of key players from across teams to investigate and pitch a concept for a product resale app.

When is the transformational leadership style effective?

Transformational leadership, as you’d expect from the name, is most effective in times of change.

This could be during mergers and acquisitions, restructuring, rebranding, diversifying a product line – any situation in which you need a leader to run point on innovation.

Jeff Bezos is the most famous example of a transformational leader. Like many companies, Amazon operates under the instruction that the customer is king, so Bezos and his team dedicated their first year of business to generating customer reviews, a practice that was unheard of in e-commerce at the time.

And when is the transformational leadership style not effective?

Transformational leadership may not work within less agile business structures or in companies where teams or individual employees are largely siloed from one another.

It works best with skilled employees who don’t need much guidance, development, or supervision – a more hands-on approach is more effective for less experienced teams.

9. Transactional

What does the transactional leadership style look like?

Transactional leadership is all about efficiency and sustainability.

Transactional leaders run a give-and-take system in which employees are rewarded for good performance and punished for bad – these leaders are not interested in making waves.

Think of the basic parameters of an elementary school teacher. They give out gold stars and certificates when you’re good, and they call your parents when you’re naughty. The rest of the time, they follow the curriculum.

Of course, there are outstanding school teachers – the ones we remember for the rest of our lives. But for the sake of an example, this basic structure describes what a transactional leader relationship can look like.

When is the transactional leadership style effective?

Transactional leadership is all about efficiency and job performance, so it’s no surprise that it’s been proven to improve job performance in settings such as banks.

However, the transactional leadership model presumes that workers only need one form of motivation, and that’s compensation. It doesn’t value factors like praise, a good company culture, or goal-setting.

Therefore, it works best when you’re working with an already highly self-motivated team or with remote or part-time workers who draw from other areas for a positive working culture, such as freelancers.

And when is the transactional leadership style not effective?

Transactional leadership alone is not suitable for most cases because ongoing feedback from peers and check-ins are key to successful team outcomes, according to 89% of HR leaders.

You should avoid hiring transactional leaders for less skilled teams that need more development, during times in your business lifecycle when you require innovation, or simply if your company culture encourages collaboration and support.

10. Bureaucratic

What does the bureaucratic leadership style look like?

Bureaucratic leadership is by the book. Although a bureaucratic leader may listen to their employees’ input when making decisions, if it clashes with company policy, it’s out. 

Bureaucratic leaders are most common in big, old, traditional institutions. A phrase you’d be likely to hear from a bureaucratic leader is “That’s not the way we do things around here.”

When is the bureaucratic leadership style effective?

There’s a reason bureaucratic leadership is associated with big corporations, and that’s because it’s hard to run such a big company effectively without a secure operating framework.

Alfred P. Sloan was appointed as the chairman of General Motors in 1937 (yep, when we said “old companies,” this is what we meant), and he favored a strictly hierarchical structure that enabled the company to roll out efficient processes across a huge number of departments and to take calculated risks as they grew.

Another place you might consider a bureaucratic leader is in highly technical departments where strict rules and a chain of command are necessary to keep things in order. These might include accountancy and law.

And when is the bureaucratic leadership style not effective?

In most cases, bureaucratic leadership is not an effective leadership style.

Today, more than 60% of professionals say that their industry is being disrupted or has unpredictable market conditions. Bureaucratic leadership, particularly in smaller companies, can make it harder for you to adapt to these disruptions and innovate to outpace them. Your more agile competitors could end up leaving you behind.

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Summary of leadership styles in business

Table comparing pros and cons of the ten leadership styles

How TestGorilla can help you identify leadership styles

That’s a lot of information to take in.

Trying to keep all of this in your mind, think about the job specs, and assess if the candidate is a culture add may sound like way too much effort for a job interview.

This is especially true when you consider that you can’t count on someone to give you an accurate answer in an interview, either because they don’t know or will lie.

Don’t believe us? More than 80% of people say they’ve lied about themselves in job interviews.

TestGorilla can take this hassle off your hands.

Here are three ways pre-interview testing helps you make better hires faster, easier, and without bias.

1. Leadership and people-management testing

At TestGorilla, we have a goldmine of pre-made test templates to help you assess the specific skills you’re looking for in candidates – and not just whether they can copy and paste them into a cover letter!

Our Leadership and People Management test offers situational judgment questions that don’t impose a specific leadership style or suggest that there’s a “right” answer.

You’ll get a real overview of whether the candidate is flexible enough and suited for the role. You also avoid the problem of candidates doctoring their responses.

Not only does this take away the usual stress on past experience – which Harvard research shows is not a good indicator of leader performance – but it also helps you:

• Hire the people who actually have the skills – not the ones who just say they do

• Avoid your own biases swaying your judgment

• Cut costs by reducing your time to hire

2. Personality/psychometric testing

Psychometric testing during the hiring process can help you identify and rule out leadership styles that aren’t a fit for your organization.

More than 80% of Fortune 500 companies already use psychometric tests in their hiring processes, and of those companies, 81% said they believe it helps them make better choices during recruitment. 

Furthermore, 57% said they thought psychometric testing could accurately predict a candidate’s job performance.

A psychometric test can help you identify which leadership styles your candidates display the most. By using this test in combination with the understanding of leadership styles you’ve gained from this article, you’ll be able to make an even more informed decision about who to hire.

Here are some examples of how our tests could help you screen for three leadership styles.

Check out our full test library

3. Custom questions/processes

Hiring managers are often put off by the idea of pre-interview testing because they think it’s not tailored to their company’s needs.

Until they find TestGorilla.

We offer a huge range of options for custom questions and processes to be added to your tests to help you find exactly what you need from your pool of candidates. 

For example, let’s say public speaking is a crucial element of the role you’re hiring for. You can create a requirement for candidates to submit video responses to questions to assess how comfortable they are with presenting.

Other ways you can use our custom fields to assess candidates include:

• Essay questions

• Coding tasks

• Uploading a sample design based on a brief you’ve supplied

We even implement anti-cheating measures to make sure that any trial activity you give your candidates is completed by them and them only. 

Go on, hire your next epic leader

You want a leader who can hit the ground running and not only survive their first 18 months in the business but also thrive in the years to come.

To hire the right candidate, you need to know what you’re looking for.

We’ve shown you the various leadership styles and helped you identify which one might be right for your company. We’ve talked the talk, and now it’s time for you to walk the walk – but you don’t have to do it alone.

We have a full guide on how to hire a leader for your organization and the tools to help you kick off the hiring process.

Sign up to TestGorilla for free to see it in action.